The first weeks of January were dominated by the collapse of Carillion – one of the UK’s largest contractors. The losses of £1.25bn on construction jobs were clear, and yet they continued to pay dividends at the expense of their supply chain and pension fund liabilities.
Giving evidence before the parliamentary enquiry, former directors claimed they didn’t know or blamed each other while holding on to lucrative bonuses, earned for what is unclear. Only the clearly deluded remuneration committee can explain. To cap it all, they claimed they had no idea that Carillion was regarded within the industry as ‘bad payers’. Really? Everyone else knew. Including, apparently, Carillion, which said five years ago: “There has been some negative coverage recently about our payment terms.” Memories are clearly short when you get paid more than a million a year!
What of government in this scandal? Several companies have mentioned to me that they took comfort from the fact Carillion was given two HS2 tunnel contracts worth £1.4bn. If government is willing to back them, then they must be secure, right? Wrong. If normal PQQ processes were followed – the ones that FIS members are subject to – they wouldn’t have been given a painting and decorating contract let alone a key role in a major infrastructure project.
The impact upon members is immediate and stark. At the President’s Lunch we could have had an empty table for Carlton Ceilings & Partitions, members since 2000; a good company taken down by Carillion. Many others have seen profits wiped out for the year, leading to redundancies.
To add salt to the wounds, there is the loss of the cash retentions held by Carillion. Cash retentions are designed to protect clients from insolvency in the supply chain and to ensure all defects are rectified. In the
wake of Grenfell, it is difficult to argue against the current need for this. As the cash is not held in trust, though, it just became part of Carillion’s working capital, and one thing they were desperately short of was cash. When Carillion failed, all the cash retentions went with it. This rightly belonged to the subcontractors and means the clients have derived no benefit from the practice.
If the cash retentions were held in an escrow account, in trust, then Carillion would not have had access to the funds and no incentive to hang on to it. This is a simple, neat solution that means cash retentions correctly fulfil their role in the contract.
There is a Bill before parliament now which is due a second reading next month to require cash retentions to be held in trust. We need you to support this campaign by writing to your MPs; a draft letter can be found on the FIS website. MPs will only respond to action from you so while Carillion is still in the headlines, please
It may appear to be a small step but it is a start, and a start in the right direction.
FIS chief executive